Regional selling pressure amid growers continues in the Brazilian market of corn

The Brazilian market follows its seasonality. August and September, month of second crop, debt settlement, and purchase of inputs. Urea has been drawing attention with sharp price highs and even scarcity symptoms. Growers are trying to speed up corn sales to allow the purchase of inputs for the 2022 second crop. On the other hand, domestic corn consumers are taking advantage of the moment to drop price levels and test new lows. In a bullish market, this type of movement is normal and seasonal. On the other hand, as we assessed in our last issue, there is the risk of a new export boom. Logistics have some slack for the last quarter of the year, and trading companies have freight contracts to fulfill and space at ports. Last week had a large volume of business in Mato Grosso, mainly for shipments in this period.

We warned in our last issue about the risk of domestic prices approaching export port levels. Last week, sales pressure in some locations increased. Mato Grosso, Goiás, Mato Grosso do Sul, and São Paulo registered a scenario of greater selling interest amid growers, who have accepted lower prices seeking short-term liquidity. This is basically due to the seasonality of debt maturities, the purchase of inputs for the summer, in some cases, but also the 2022 second crop.

Urea prices continue rising. Growers are afraid of shortages for the planting of the 2022 second season and are buying ahead of schedule. To do this, they either sell more corn or pay for fertilizer purchases with physical corn. Resellers and cereal companies push to transfer these volumes to the market. At this point, there is an unexpected supply and a selling pressure that growers accept as long as they find liquidity for business.

The issue is that, in this context of greater supply and with consumers in the domestic market already holding stocks or trying to find a bottom for prices at this time, trading companies show two very clear movements at this time. The first is that washout is ruled out, as with the port at BRL 84/85 and the domestic market trying to pay BRL 90 CIF or less, the operation is unfeasible.

The second is that there is global demand. The rise in prices in Argentina brings back a better ratio for Brazilian corn with higher premiums. Premium in Brazil jumped to 150/170 cents over Chicago last week. Besides, there were renegotiations in logistics for the last quarter of 2021, mainly in railway freight. With transport costs under adjustments, premiums on the rise, the physical market selling more, and the exchange rate offering moments to improve the internal mathematics, trading companies returned to exports in the second half of September. It is believed that at least 15 new shipments were scheduled for the last quarter and, of course, the good quality corn from Mato Grosso is the main focus.

Therefore, the reduction in domestic prices in the second half of the year is delicate and should be used by domestic consumers to prolong their stocks position. The government finally released the decision for exemption of PIS/Cofins between October and December this year for corn imports. As we have already explained in our previous issues, the release of the tax allows consumers who do not have the feasibility of the drawback regime to import corn without the incidence of this taxation. Undoubtedly, in new urgent supply situations, the measure may be viable. Today, imported corn costs between BRL 94/96 in Brazilian ports plus internal transportation expenses. So, the domestic market today is ‘cheaper’ than imported corn. Therefore, the measure may become ineffective for corn at the end of the year. For the Northeast region, however, the measure may help to reduce costs and still make imports viable until January.

The planting of the Brazilian summer crop advances in the southern region, with good progress so far, at least as far as half of Paraná. In the Midwest and Southeast, planting conditions are still very poor and risky. The rain may arrive this October in these regions and determine the start of the advance of corn planting, mainly in the Southeast. But planting in October will mean a harvest starting at the end of February or March, that is, in the middle of the soybean harvest, high freight rates, and very busy logistics. For the Southern region, there must be harvest in February and March but with a lot of demand for new corn.

SAFRAS & Mercado

Tags: corn, price, Brazil, Market, market of corn, corn sales